CMS Expert Guide to Foreign Investment Screening Laws in Germany

The German FDI laws are set out in the Foreign Trade and Payments Act (Außenwirtschaftsgesetz – "AWG") and in the Foreign Trade and Payments Ordinance (Außenwirtschaftsverordnung – "AWV").

When defining sensitive activities, the AWV occasionally refers to other German regulations, in particular the Ordinance on the Determination of Critical Infrastructures (BSI-Kritis-Verordnung), and the German Export Control List (Ausfuhrliste) which concerns the defence sector.

Alongside these German regulations, Regulation (EU) 2019/452 (EU FDI Screening regulation) is also applicable in Germany.

Germany is currently drafting a new FDI act. It is unclear whether the new FDI act will enter into force in 2026.

German FDI laws apply to asset deals and to share deals/acquisitions of voting rights.

Whether a transaction is caught depends on a combination of three factors: (i) the type of transaction (certain asset deals and certain acquisitions of voting rights); (ii) the nationality of the foreign investor (EU/EFTA or non-EU/non-EFTA); and (iii) the specific activities carried out by the German target. An in-scope transaction only requires a mandatory filing if the German target engages in certain listed activities.

Asset deals are caught if an operational unit in Germany (or all essential assets required for operating such a unit in Germany) is, directly or indirectly, acquired by either a non-EU/non-EFTA person, or, for units carrying out particularly sensitive activities, a non-German person.

Share deals are caught if, as a result of the transaction, a foreign person holds, directly or indirectly, certain amounts of voting rights in a German entity:

• German FDI laws apply to any acquisition (no financial thresholds, any activity) which results in a non-EU/non-EFTA investor holding, directly or indirectly, at least 25% of the voting rights in a German target. If the German target is active in any of 27 listed activities, lower thresholds of 10% or 20% of the voting rights apply.
• If the German target engages in any of 4 particularly sensitive listed activities, any acquisition which results in a non-German investor holding, directly or indirectly, at least 10% of the voting rights in the German target is caught.
• Subsequent add-on acquisitions as a result of which the voting rights held, directly or indirectly, by the foreign investor reach 20%, 25%, 40%, 50% and 75% are caught again.

If the amount of voting rights held by the acquirer increases as a result of the transaction but does not cross any of the above thresholds, the transaction is still in scope of German FDI review if the acquirer is granted (i) the right to appoint additional members of the senior management or supervisory board, (ii) a veto right concerning strategic business or personnel decisions and/or (iii) the rights to access sensitive information of the German target and, as a consequence, the acquirer is able to exert a degree of influence over the German target that corresponds to the degree of influence conferred if the amount of voting rights had crossed any of the above thresholds.

German FDI review covers direct and indirect acquisitions/investments. An indirect acquisition for the purposes of German FDI review does not require the indirect shareholder to control the downstream indirect and direct shareholders of the actual acquirer of assets of / voting rights in the German target. Rather, every direct or indirect shareholder in the shareholder chain who holds voting rights that meet the aforementioned thresholds will be considered an indirect investor, through the entire shareholder chain up to the ultimate shareholder level. Dilution will not be taken into account, so for example if A holds 10% in B and B acquires 10% in C, then A is considered to acquire indirectly 10% in C.

Intra-group restructurings are, in principle, within the scope of German FDI laws. Greenfield investments are, in principle, out of scope of German FDI laws. However, certain exceptions exist.

German FDI laws lists 27 sensitive and 4 particularly sensitive activities which fall into various broad categories:

• Operation of critical infrastructure or development of software for such infrastructure
• Development, production or handling of military items and certain dual-use, aerospace and aviation items
• Development or production of certain medical devices or pharmaceuticals
• Development or production of certain high-tech goods (e.g. autonomous driving, robotics, artificial intelligence, semiconductors and components, quantum technologies, nuclear materials, 3D printers, smart metering gateways, certain telecommunication or surveillance products)
• Extraction, processing or refining of critical raw materials
• Cultivation of large agricultural areas
• Operation of media companies

German FDI laws follow a hybrid approach:

• Filing is mandatory if the German target engages in any of the 31 listed sectors/activities and the transaction is otherwise in scope. In these cases, the transaction must not be closed prior to clearance.
• Filing is voluntary if the German target does not engage in any of the 31 listed activities but the transaction is otherwise in scope. In these cases, as there is no strict filing obligation, the transaction may close. However, the transaction can be called in by the authority ex officio, within two months of becoming aware of the transaction, provided that the call-in takes place within five years of signing the transaction. Voluntary filings are possible in order to receive legal certainty.

German FDI laws theoretically foresee two different substantive tests, depending on the German target's activities. In practice, however, the differences between these tests are limited:

• If the German target engages in any of the 4 particularly sensitive listed activities, the substantive test is whether the investment is likely to affect the essential security interests of the Federal Republic of Germany.
• If the German target engages in any of the other 27 listed or in non-listed activities, the substantive test is whether the investment is likely to affect the public order or security interests of the Federal Republic of Germany, of any other EU Member State, or in relation to projects or programs of Union interest (as defined in Regulation (EU) 2019/452).
• Both tests are vague, and the government has wide discretion to evaluate the likelihood of risks as it sees fit, reflecting that German FDI proceedings are inherently political as much as they are legal proceedings.

FDI proceedings are coordinated by the German Federal Ministry of Economic Affairs and Energy (Bundesministerium für Wirtschaft und Energie – "BMWE"). The BMWE consults with other ministries such as the Federal Foreign Office (Auswärtiges Amt), the Federal Ministry of the Interior and Community (Bundesministerium des Innern und für Heimat), the Federal Ministry of Defence (Bundesministerium der Verteidigung) and the Federal Ministry of Finance (Bundesministerium der Finanzen).

The direct acquirer is responsible for filing.

Following submission of a mandatory or voluntary notification ("phase 1") the BMWE has 2 months to either clear the transaction or initiate an in-depth assessment. Clearances in phase 1 are not typically rendered before week 6 of the proceedings.

In-depth ("phase 2") proceedings are initiated in 10 to 20% of all cases. The assessment period in phase 2 proceedings is up to 4 months and can be extended unilaterally by the government by up to 4 months. The clock is stopped pending formal requests for information and the negotiation of mitigation agreements (commitments to address concerns the government may have).

All deadlines can be extended by mutual agreement.

If the BMWE does not issue a decision at the end of phase 1 or phase 2, the transaction is deemed cleared.

Administrative fees for cases ending in phase 1 are EUR 800. Administrative fees for cases ending in phase 2 are EUR 2,500 to 30,000.

FDI proceedings are not public and the BMWK does not publish any information on individual cases. It does not publish a list of pending cases and does not publish its decisions.

If filing is mandatory, transacting parties are prohibited from:

• exercising the voting rights acquired; and/or
• making company specific information available to the acquirer.

Infringements of these prohibitions carry a fine or a prison sentence of up to 5 years for natural persons and fines of up EUR 10 million for legal entities.

If filing is mandatory, the transfer of shares or assets remains legally invalid until cleared / deemed to be cleared by the BMWE.